Industry Committee on Jan. 26th, 2022

[Dr. Jeffrey B. Kucharski]

Thank you for your questions.

I'm not a mining engineer, so I can't answer specific technical questions on the differences between lithium hydroxide and lithium carbonate, but my general understanding is that both of those inputs can be used and converted into the material used in lithium ion batteries. I think we've heard that also from others on this panel. I would therefore consider them both to be lithium inputs to electric battery production and therefore critical minerals subject to the scope of the legislation.

Could you just quickly remind me of your second question?

[Andy Fillmore, Liberal, Halifax, NS]

Sure. One concern expressed around this transaction was that Canada is somehow giving up the usage of this lithium for Canadian purposes—the Canadian automobile industry, for example. We heard that from one of the other witnesses. Would we have had any lever to keep those minerals in Canada had we not let this transaction happen?

[Dr. Jeffrey B. Kucharski]

Yes, I think Professor Wark also mentioned this, but it's not just the mere fact that the assets—or the mine itself—were in Argentina. No, there is no way, I think, that Canada could or should compel a company to bring all of that production back to Canada—of course not.

However, this is part of a broader pattern. We've seen other Canadian lithium companies be acquired, perhaps not with national security reviews. We see the dominance of China in this space. We see the efforts of Canada and our partners and allies to strengthen critical mineral supplies so that we aren't reliant only on China and we're not subject to economic coercion or other leverage applied by that country, which they have been known to do in the past, particularly against Japan back in 2010.

I think, as part of a bigger story, what I'm saying is that there are intellectual property issues, there is management knowledge and there is this company as part of a supply chain, potentially, that we now don't have any longer to help build our own supply chain here in Canada.

Maybe in the short term we can't bring that lithium back to Canada. I don't know that for a fact, but companies like that are building blocks for building a supply chain, so I think that allowing those companies to pass a national security review seems odd to me. If you look at the bigger strategic picture and what we want to do over the longer term, it seems to me that there were reasons why we could have reviewed that acquisition within more of a broader strategic context of building supply chains here in Canada.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Kucharski.

Mr. Fillmore, that is all the time you had.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you.

[The Chair, Liberal, Joël Lightbound]

The floor now goes to Mr. Lemire, for six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

My first question is for Mr. Tsafos.

If I understood your testimony correctly, China has an effective plan for critical minerals and for the development of high technology.

Should Canada and the United States—if I may include them—be developing a common strategic plan for critical minerals and for the development of high technology?

[Nikos Tsafos]

Thank you for the question, Mr. Chair.

I think the short answer is, yes, where it makes sense. We're talking about a lot of technologies. We're talking about a lot of minerals. Some countries have them; some countries don't. Some countries have industrial competencies that others don't. I don't think the answer is “everyone for himself”. We can benefit from trade and collaboration, but it does seem to me that having industrial competencies and serious supply chains that are not dominated by or run exclusively through China is a worthwhile goal.

As we argue here in the United States, this doesn't mean that everything has to be produced in the United States, but if you're going to be producing it overseas, you could do it with U.S. investors, Canadian investors and other western investors. There are multiple ways to be involved in a supply chain that is not just domestic production.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

In your view, should the Canadian government provide better support to Canadian companies developing critical mineral deposits outside Canada? Should that support extend more to the supply and value chains?

You briefly mentioned the matter, but I'd like to hear more about it.

[Nikos Tsafos]

Yes, I can speak maybe a bit from a U.S. perspective as well, because I think it speaks a little more to my experience.

The major challenge with China right now is that they are a dominant part of the processing, the point where the mineral comes out and becomes something useful, so today, even in the United States or Canada, if you extract something, it may have to go to China to acquire value. You have to think about your position throughout the value chain. Sometimes, the extraction itself doesn't get you much diversification if there's only one buyer and that is China, and you have to send all your commodities there.

I think it's important to think about the entire value chain, and that is where collaboration can happen. One country may have the minerals. Another country may have capabilities to turn the minerals into useful products. A third country may have the final industries, whether it's automotive or batteries. That is the kind of collaboration that I think we need, but it has to sink through the entire value chain. The extraction is just the beginning. That's not where most of the value is. Most of the value is in being able to access the mineral and, in the case of lithium, to ultimately turn it into a battery in an electric vehicle.

The money is not really in the lithium. I mean, there is money in the lithium, but the money is really in the final product.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

From your observations, does Canada have a vision, a national strategy, for critical minerals?

How could the Government of Canada champion the development of that strategy, in your opinion? What steps would be needed to establish an effective national strategy?

[Nikos Tsafos]

Thank you.

I won't profess to critique or be an expert in the Canadian strategy on critical minerals, but I will say that something we've seen in a lot of places—not just the United States, which I know very well, or Europe, which I also know very well—is that we have a tendency to think about the energy transition and trying to enable the final products that we want. We want solar or wind or electric vehicles, but we neglect to think about the supply chain that will enable those final products. We give a subsidy if you install a solar panel or a wind turbine or if you buy an electric car, but we don't have the same amount of industrial focus to make sure the rest of the chain is built either in the country or in allied countries.

I think that has been a deficiency in multiple countries, with the exception of maybe Australia, which is a major producer of a lot of these critical minerals. That is one area of attention.

The second area of attention, of course, is finding the right balance between local populations—especially first nations in the case of Canada or aboriginals in the case of Australia—and foreign investors for high environmental standards. Doing that has been trickier in the west than in some of the places that maybe don't adhere to the same kinds of standards we would like them to adhere to. That, I think, is another area for critical government work: to try to make sure we can raise standards, but not to do so at the expense of ever producing anything, which is sometimes where we may end up.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I would like to ask one last question.

Do you believe that the deal to acquire Neo Lithium, close to $1 billion, is a fair price? In your opinion, would China have paid more to acquire it if Canada had shown an interest?

[Nikos Tsafos]

I won't pretend to have done due diligence on the project in order to be able to offer a fair price for the transaction, but I will say two things. One, on lithium prices, if you look at the chart, they have gone up a lot, so what this transaction would be today versus three or six months or a year ago is very different.

The broader point is that the forecasts are talking about 30-, 40-, 50- or 60-times increases in these critical minerals. For lithium the International Energy Agency thinks the increase might be a hundredfold.

When you grow a market a hundredfold, it is very difficult to understand today what that market is going to look like. We're talking about an enormous amount of value, and we're also talking about developing resources in a lot of places where we don't think doing so is economical now. If you have to grow something 100 times, you have to go to those resources that are not economical now, so the value changes over time. We've seen this with hydrocarbons. We're going to see the same thing with critical minerals.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Tsafos.

Thank you, Mr. Lemire.

Mr. Masse now has the floor, for six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to our witnesses.

I asked this committee 17 years ago to look at this issue because China Minmetals Corporation was spending $7 billion to buy up Noranda. Then prime minister Paul Martin thought it was a good idea. It was the first state-owned enterprise to do such a thing. Then industry minister David Emerson showed some reservations about it, but then later he backed off. We've had other incidents since then that have been focused on China. The concern I raised at the time was about our private equity firms and other unknown purchasers.

My first question is for Mr. Wark and Mr. Kucharski.

Should we not be looking also at some type of transparency there, or at least at some review, and how do we deal with that when we have co-investors? I don't mean just China. It's non-democratic governments that have been purchasing Canadian companies. What we have seen is successive governments raise the threshold over and over for triggering reviews, and at the same time the danger we have right now, in my opinion, is also losing start-ups without any reviews or screening, for which smaller amounts of money are allocated.

During all this, it's just ironic that we're doing this because of electric vehicles and concerns related to those. If we go back in time, as I said, it was unacceptable for Canadians to own even shares in Petro-Canada for our vehicles at that time as we sold it off, and then, when you fast-forward to today, we even had to buy pipelines.

Here we are again, dealing with automotive and the consequences for transportation. What I'd like to know is this: Should we be opening up a little of this but more robustly than just focusing on China alone?

Go ahead, Mr. Wark and Mr. Kucharski, please.

[Dr. Wesley Wark]

Thank you, Mr. Masse.

I'll just say that I think probably government officials may agree with you in questions tomorrow that the national security review process needs to be more robust. It is probably not resourced to the extent it needs to be. Intelligence assessments on these foreign direct investments are very difficult and take time, and we certainly need to work with allies to think through them, which is one of the reasons why I am so struck by the fact that the government was so confident that it didn't need to even invoke the second 45-day period that's available to it before it goes to a full national security review.

I would also like to take up your point about losing start-ups, because I think this is very significant, not least in the critical minerals industry. What we are losing with regard to the Chinese takeover of Neo Lithium, at a pretty extraordinary price tag, is a start-up. Neo Lithium is a junior miner with this project in Argentina, which is a kind of pilot project, a pilot plant extraction effort. It recognized—and it's clear in the company's own transactional documents—that it needed more capital or a partner to be able to really bring this asset online.

It found that partner in a Chinese mining company, not in a western one. I think it is important—and it should have been important to a national security review—to reflect on that fact and on the significance of losing start-up capacity, which is not just about a mine asset in Argentina. It is about, as I've said, technological know-how and intellectual property, and about the future, and we have cut ourselves off from that by failing to think through these issues more significantly.

Thank you.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Go ahead, Mr. Kucharski.

[Dr. Jeffrey B. Kucharski]

I would build on that by saying that in this case the company that's doing the acquisition, Zijin Mining, is a state-controlled company, and that should have automatically triggered a national security review, in my view. I would tend to focus, in terms of the legislation—the guidelines—mostly on state-owned enterprises, whether they're from China or anywhere else, but particularly from China because of China's dominance in critical minerals and also because China has used that dominance, not only in critical minerals but through demand in its own economy, to exert coercion and leverage over other countries. Therefore, we have a specific concern with China's behaviour.

As I said in my opening statement, I think that state-owned enterprises or state-controlled firms, particularly those from China, should automatically trigger national security reviews, and certainly in this case one should have been conducted, in my own view.

We know that state-owned and state-controlled enterprises have unfair advantages over private firms, such as Canadian firms that have to compete in the marketplace for capital. They have access to cheap capital. They have access to subsidies. They are under the influence of the government and the regime, which has its own strategic priorities and, therefore, can influence how those assets are employed.

For a number of reasons, I think that's justifiable. Thanks.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I want to get Mr. Volpe into this.

Mr. Volpe, you had some really good testimony. I think it's probably some of the most pertinent when you look at the practical application of what we face here. As you mentioned, we've actually slipped to 10th in the world in auto manufacturing. I remember the days of being at number three. As well, we don't have the domestic decision-makers we used to. We don't even have many CEOs. We used to have Canadian CEOs for some of the companies that were here. Some of them were trained in Canada and later on became CEOs in the United States and other places.

I guess where our auto industry is going could be getting out of the traditional systems, as you mentioned, that are still very much dominant and having a greater strategy than just rip-and-ship, meaning having lithium and others as part of our positioning to get investment.

How important is it to have a policy to not just rip and ship these resources out to other automakers across the globe, let alone the United States? It could be Mexico. It could be Europe. It could be China—whatever. How important is it for us to have a solid domestic policy not to rip and ship?

[The Chair, Liberal, Joël Lightbound]

Mr. Masse, I'm sorry. We're already extended by about a minute on your time for questioning. I'm sure we'll have the chance to get back to this important question for Mr. Volpe in your next round of questioning.

[Brian Masse, NDP, Windsor West, ON]

I'll leave that for Mr. Volpe for the next question. Just let me know, Mr. Chair.

Thank you for that.

[The Chair, Liberal, Joël Lightbound]

Thank you.

We will now move to the second round of questions, for five minutes, starting with Bernard Généreux

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

My thanks to all the witnesses also.

Mr. Wark, last week, BNN Bloomberg pointed out that Canadians and investment funds in Canada seemed to be turning their backs on their own country by choosing to invest $144 billion abroad in the first 11 months of 2021. Yet our great and wonderful country is sitting on a vast reserves of resources that could secure Canada's economic success for decades.

How do you explain the fact that foreign companies see the advantage in investing in Canada's mining industry but Canadians themselves do not? My question is along the same lines as the one Mr. Masse asked previously.

[The Chair, Liberal, Joël Lightbound]

Who is your question for, Mr. Généreux?